Sanctions on Russia were just a warm-up for a future crisis with China

Getty Images

When Russia invaded Ukraine, the U.S. financial sector found itself at the center of a geopolitical crisis it was never fully equipped to handle. Sanctions designations surged. The Treasury Department's Office of Foreign Assets Control issued thousands of updates in a matter of weeks. Institutions that had long treated sanctions as a static compliance box suddenly found themselves executing foreign policy in real time.

The crisis passed. But the lesson should not be forgotten.

As momentum around Russia sanctions begins to slow, and as ceasefire scenarios start to reenter public discourse, there is already visible slippage in institutional urgency. Banks are shrinking their sanctions teams. Tooling upgrades are being deferred. Risk committees are quietly signaling that budget can be reallocated elsewhere. It is a familiar pattern. React, recover, then revert. But this time, the consequences of regression may be far more severe. Because the next event will not look like Russia. It will look like China.

A Taiwan Strait conflict is no longer some far-off contingency reserved for academic war games. It sits on the front end of nearly every serious national security forecast, with timelines that generally point to the next several years. Any conflict, even a limited one, would trigger a sanctions response that dwarfs anything the U.S. or its allies have attempted before. The target scope would be immense. Chinese financial institutions, state-owned enterprises, regional governments and national technology champions would all fall under scrutiny. Designations would need to be coordinated, executed quickly and updated daily. Multilateral enforcement would be complex. The pressure on U.S. banks to serve as real-time enforcers would be immediate and unrelenting.

And the system, as it stands today, is not ready.

The data tells a different story than the rhetoric. While Treasury did expand its sanctions infrastructure on paper, the actual staffing growth has been modest. Headcount at the Office of Terrorism and Financial Intelligence rose from approximately 594 full-time employees in 2022 to a requested 676 in the 2025 budget. That's 82 positions added over three years, despite a historic surge in designation volume, the complexity of enforcing layered sanctions regimes, and escalating geopolitical pressure points across Russia, China and Iran. The government has rightly declared sanctions a centerpiece of U.S. deterrence strategy. But the execution arm remains thin. Treasury may have grown slightly, but it remains woefully understaffed relative to the mission it now claims to lead. And as Treasury struggles to keep up, banks' desks remain understaffed as well. Training cycles remain infrequent. In too many institutions, sanctions expertise is embedded inside broader financial crime teams without dedicated escalation paths or technical ownership. And perhaps most dangerously, very few banks have built rapid-response playbooks for high-velocity designation events.

This is not just an operational risk. It is a strategic failure in the making. Because sanctions are not a policy tool that lives in a memo. They are executed through banks. That is the mechanism. You can write a perfect executive order in Washington, but if New York cannot freeze the right assets, halt the right wires or identify the right control structure within hours, the policy collapses. That was made clear in 2022. It will be even more true in a China-based scenario, where evasion networks are deeper, shadow banking systems are more mature and the economic exposure of U.S. institutions is far greater.

Payments

Can Russia's payment alliance with China get around banking sanctions?

VTB, one of the largest state-run financial institutions in Russia, is allowing transfers in yuan without using the SWIFT messaging system. However, building scale without access to Western markets will be a challenge.

By John Adams

September 12

Yet across the sector, sanctions investment is being treated like an adjustable expense. Compliance leaders are being asked to do more with less. Headcount freezes are returning. Budget for tooling is being pushed into next fiscal cycles. And as Russia-related activity normalizes, the pressure to justify any remaining sanctions spend is increasing.

That is the exact wrong posture.

The solution is not radical. It is structural. Sanctions headcount must be treated as fixed infrastructure, not a flexible lever. Surge plans must be built now, with clear allocation models for designation updates, legal reviews and customer communication. Tooling pipelines must prioritize data ingestion quality and evasion typology detection, not just screening throughput. Scenario testing should be embedded into quarterly governance cycles. And most importantly, boards of directors must treat sanctions capacity as national security infrastructure, not as a discretionary element of enterprise compliance.

Because the reality is simple: When the next round of sanctions hits, no one will care what your earnings guidance said. They will care whether your institution held the line. Whether you executed quickly. Whether you stayed clean. Whether you helped maintain the integrity of U.S. economic deterrence. And if your bank is not positioned to meet that moment, then it is not a leader. It is a liability.

Russia was the stress test. China will be the final exam. And the difference between the institutions that endure and the ones that get dragged into headlines will come down to one thing: readiness.

Not performance after the crisis. Capacity before it.